Since the U.S. economy reopened weeks ago, a string of new infections of the dangerously infectious coronavirus has been reported by several states. With the number of cases rising by leaps and bounds, investors have become skeptical of the broader markets. Markets may have put up a brave face since the beginning of this week, but with investors jumping the gun lately, it’s best to be prepared for an adverse scenario.

This is why mutual fund investors could choose to go defensive at present.

New COVID-19 Cases Emerge, Threats of Second Wave

As of Jun 17, the total number of cases of the deadly disease has hit 2,208,402 in the United States, with a death toll of 119,132. As many as nine states have reported new single-day highs or set a record for seven-day new case averages on Jun 16.

According to Washington Post, Alabama, Arizona, Florida, Nevada, North Carolina, Oklahoma, Oregon, South Carolina and Texas reported the aforementioned spike in new COVID-19 cases.

A major reason for this rise in new infections could be the protests around the country that began about two weeks ago, when thousands of people marched on the streets in close proximity of each other. This could result in a further spike in infections in the near term.

According to Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, “In a period of four months, it has devastated the whole world. And it isn’t over yet.” Fauci had earlier said that it could take 12 to 18 months to formulate a vaccine.

This is why one could go defensive right now, in order to shield one’s portfolio should the number of cases spike even more ahead. To do so, one could consider investing in sectors such as consumer staples and utilities. Since these sectors offer crucial products and services that are essential in everyday life, their demand seldom witnesses a downfall even in times of economic uncertainty or market gyrations.

3 Best Mutual Funds to Buy

We have, therefore, selected three mutual funds that invest in the aforementioned sectors. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). In addition, the minimum initial investment for these funds is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds.

AllianzGI Water Fund Class A (AWTAX - Free Report) aims for capital growth over a long period of time. The fund invests the majority of its assets in securities of companies that are included on the S&P Global Water Index, the NASDAQ OMX US Water or Global Water Indices or the S-Network Global Water Index. AWTAX is a non-diversified fund.

This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. 

AWTAX has an annual expense ratio of 1.22%, which is below the category average of 1.35%. It has returned 8.4% over the past year. The fund has a minimum initial investment of $1000.

Franklin Utilities Fund Advisor Class (FRUAX - Free Report) fund aims for capital growth and current income. The fund invests the majority of its assets in securities of utilities companies. These companies are providers of electricity, natural gas, water and communications services. The fund mostly invests in equity securities of companies.

FRUAX has an annual expense ratio of 0.58%, which is below the category average of 1.11%. It has returned 3% over the past year. The fund has no minimum initial investment.

Fidelity Advisor Consumer Staples Fund Class A (FDAGX - Free Report) aims for capital growth. The fund invests the majority of its assets in securities of companies that manufacture and market consumer staples products. The non-diversified fund primarily invests in common stocks of companies.

FDAGX has an annual expense ratio of 1.04%, which is below the category average of 1.19%. It has returned 4.2% over the past year. The fund has no minimum initial investment.